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A Clear-Eyed Look at China’s Climate Target

Here is a post by NRDC China Fellow, David Cohen-Tanugi, who is in our Washington, DC office:

In the lead-up to Copenhagen, and again in its submission to the UNFCCC in January, China announced a target to lower its carbon intensity, the amount of carbon dioxide emitted per unit of GDP, by 40-45% by 2020 compared to a 2005 baseline. Now, while U.S. legislators deliberate the details of a much-needed climate and energy bill, Chinese leaders have already entered into in-depth discussions on their national plans, policies, investments and enforcement mechanisms for achieving this target.

Just last week, a senior Chinese climate statesman, He Jiankun, made news when he and other energy experts recommended that China should set a target for reducing its carbon intensity by 18% in the upcoming Twelfth Five-Year Plan (2011-2015) (link here, Chinese only). By including this carbon intensity target into the next Five-Year Plan, it will become legally binding once approved by the National People’s Congress early next year. Progress in achieving the target will also become an indicator in the job performance rating of every provincial governor and major enterprise owner.

In order to provide more context to the recent policy proposals in China, this blog post takes a closer look at the details of China’s carbon intensity target and answers some of the crucial questions about how it can achieve its target.

Will China need to take real carbon-reducing actions in order to meet its target?

Yes. China will only be able to limit the growth of its emissions in accordance with its target by increasing investments, creating new policies and proactively continuing existing ones. The graphic below illustrates how China’s Copenhagen target will require significant efforts, while leaving room for even more ambitious reductions:

Here is a short list of the main policies and actions that China will likely take in order to achieve its carbon intensity target.

Reducing energy intensity: China will make further reductions in the total primary energy consumed per unit of GDP, which is determined by the energy efficiency of China’s power generation, industry, buildings, vehicles and equipment, and the relative share of energy intensive industry, light industry and services in its economic structure. China’s current Eleventh Five Year Plan (2006-10) calls for a 20% reduction in energy intensity, and there has been discussion among Chinese policy experts of setting a further energy intensity reduction goal of 16% for the next five years (link here, Chinese only). Even then, China will still have much work to do after 2015, which could be more or less difficult depending on how China’s economy evolves.

Increasing the share of non-fossil energy: Carbon emissions are also reduced by giving a larger role to non-fossil energy sources, such as hydro, wind, solar, biomass and nuclear energy, which have near-zero CO2 emissions. China has pledged to increase the share of non-fossil energy in its primary energy consumption to around 15% by 2020, and has been making rapid progress towards achieving this goal. This is already being done through massive financial investment in renewable energy as well as a combination of policy mechanisms that encourage renewable energy deployment, such as, feed-in tariffs for different renewable technologies, and subsidies. China has also recently amended its Renewable Energy Law to require the grid to purchase a set percentage of renewable power each year as well as creating a streamlined mechanism to fund these incentive programs.

Improving the fossil fuel mix: China’s carbon emissions are also strongly determined by the relative share of coal, oil and natural gas in its fuel mix. Although few specific details are available about how China plans to improve its fuel mix, it will likely need to increase its use of natural gas instead of coal, since natural gas emits about half as much CO2 per unit of energy as coal.

Reducing emissions from industrial processes such as cement-making or steel production, which emit carbon dioxide not only from burning fossil fuels but also from chemical reactions. These emissions from chemical reactions currently account for approximately 10% of China’s total emissions (excluding land use change), and they will now be covered by China’s targets for the first time. We will continue to track the topic of industrial emissions closely as further details are.

You may have come across several commentators who dismiss China’s target as nothing more than business as usual (for example here, here and here). China, the claim goes, was going to reduce its carbon intensity by 40-45% anyway. But we disagree with these commentators and argue that China’s target actually represents quite a significant commitment for several reasons:

(1) Over the last five years, China has taken significant actions to address climate change, actions which have already lowered its CO2 emissions growth below business as usual;

(2) China will need to do even more from now on to reach its new carbon intensity target of 40-45%; and

(3) ‘Reference Scenarios’ are not the same thing as business as usual.

More explanations are warranted on each of these points, all of which suggest that China may actually be on the right track. After all, only five years ago the U.S. Energy Information Administration predicted that for each 1 percent increase in China’s GDP, its emissions would increase by 0.7 percent until 2020. Because China’s GDP has turned out to grow so phenomenally fast, at this rate the country’s carbon intensity would have reduced by only 22% by 2020. The fact that we are now looking at the 40-45% range is a sign that the picture in China has changed significantly from just five years ago.

(1) China has already taken significant action to address climate change in the last five years: Before China launched a series of new policies in 2005, its carbon emissions had been steadily increasing by roughly 16 percent per year – but two years later these proactive policies had already helped drop that number down to 6 percent, according to data from the International Energy Agency.

How exactly did China achieve this progress? China’s government took significant measures to improve energy efficiency in the Eleventh Five Year Plan, including replacing inefficient coal-fired power plants and outdated heavy manufacturing capacity with more efficient alternatives,[2] rating the job performance of provincial and enterprise leaders on how well they reduce energy intensity; establishing a program to improve the efficiency of the top 1,000 energy-consuming enterprises; and dramatically increasing energy generation from low-carbon sources.[3] The chart below from Lawrence Berkeley National Laboratory gives a more precise breakdown of how China has been achieving these energy improvements.

So far these efforts have resulted in substantial reductions in energy intensity nationwide due to the substantial financial investment and policy measures China has already put in put in place, although China is now undertaking a major push in order to achieve the target by the end of this year. But China’s central government has faced and continues to face growing resistance from provincial and local officials who regard these efficiency measures as obstacles to GDP growth and local development plans (as William Chandler at the Carnegie Endowment for International Peace and Prof. Wang Yanjia note here).

(2) China will need to do even more to reach its new carbon intensity target of 40-45% from now on: Even if we assume that China can succeed in reducing its energy intensity by 20% from 2006-10 and in continuing its deployment of non-fossil energy until the end of the year, it will still be only halfway to its 2020 target. Considerably more efforts will be needed.

NRDC looked at this question in some detail, and our analysis suggests that if China’s existing efforts were not continued beyond 2010, the country’s carbon intensity would only decrease by 36% by 2020. Indeed, we analyzed the hypothetical situation in which China would only carry out its existing national goals – to reduce energy intensity by 20% from 2006-2010 and to meet a 15% non-fossil energy target – but where China would not set forth any new policies and measures from 2010-2020 to reduce emissions and energy consumption beyond these existing goals. On the one hand, we found that in this scenario China’s carbon intensity would still continue to decrease, since new industrial production would be more energy-efficient and since energy-hungry heavy industries would gradually give way to more light industry and services. But on the other hand, we also found that this spontaneous improvement would only lead to a 36% reduction in carbon intensity by 2020. In other words, without additional actions China’s carbon intensity would fall significantly short of its 40-45% target.

(3) ‘Reference Scenarios’ are not the same thing as Business as Usual: Some commentators have claimed that China’s target is no better than business as usual, generally by relying on the Reference Case forecasts of energy organizations such as the International Energy Agency (IEA) and the U.S. Energy Information Administration (EIA). But contrary to conventional wisdom, these Reference Cases are not intended to describe China’s “business as usual” trajectory and it would be erroneous to regard them as such.

The Reference Scenarios in the IEA and EIA forecasts are designed to examine the situation in which a nation continues all of its existing policies with respect to climate change. In contrast, “business as usual” refers to a scenario in which a country carries on with its economic development without taking any measures to address climate change. For a country like China that has already taken significant actions to reduce the growth of its energy demand and emissions, the difference between continuing existing policies and business as usual (i.e. doing nothing to address climate change) is considerable.

Indeed, China’s existing policies for energy intensity and non-fossil energy sources represent a sharp deviation from previous energy trends and they have already required substantial resources, investment and policy intervention. To claim that these measures represent business as usual is to misunderstand the purpose of Reference Case forecasts and to penalize China for taking early action.

Even accepting that China’s target is a significant new commitment, two looming questions remain: Will this target be enough to save the planet? And can China do better?

Will China’s target be enough to save the planet?

The good news is that China’s target is almost in line with its share of the reduction needed to keep atmospheric concentrations of greenhouse gases below 450 ppm. The upper bound of China’s target is close to what is called for in the International Energy Agency’s ‘450 ppm Scenario’ in its World Energy Outlook 2009, which analyzes a situation in which each country does its share to stabilize atmospheric GHG levels at 450 ppm of CO2-equivalent.

Under the IEA’s 450 ppm scenario, China would reduce its carbon intensity by 47 percent from 2005 levels by 2020. In other words, a 47 percent reduction in carbon intensity would be a good first step from China in the global effort to prevent temperatures from rising by more than 2 degrees Celsius over pre-industrial levels. This is fairly close to the upper end of China’s target range of 40-45 percent.

None of this is to suggest that China alone can save the planet. China’s emissions are still rapidly rising and will likely continue to rise until 2020 at the very earliest. All told, the climate pledges by countries in the Copenhagen Accord do not add up to the reductions needed to stay below 450 ppm. Moreover, even 450 ppm may not be enough. The more we learn about our atmosphere, the more we realize that global warming may be amplified by methane locked in the permafrost layer and by oceans absorbing less carbon dioxide than we previously believed, and that even stronger global efforts may therefore be needed to avert catastrophic climate change. This is precisely why the world needs every country to step up to the challenge.

Can China do more?

The short answer is yes, China can do more – and there is hope that the country will do more. There are several reasons to believe that China’s performance may potentially exceed the official 40-45% target:

Our analysis indicates that with its current level of effort, China could attain 47% or more. How would it reach this goal? Assuming GDP growth stays close to 8-9% per year, this would require reducing energy intensity by 15% and 12% in the next two five-year periods. It would also require China to reduce its reliance on coal to 62% in 2020 and increase its share of non-fossil energy to 15% and natural gas to 5%, which is in line with the IEA’s 450 ppm scenario.

This goal is not out of reach: Chinese leaders are considering new domestic targets that are even more ambitious than this. Last month, several Chinese policy experts made recommendations for a 16% energy intensity reduction target in the next Five-Year Plan followed by an additional 14% reduction thereafter. Combined, such targets would decrease China’s carbon intensity by about 48%, which is even deeper than the recent 40-45% pledge. The political discussions are still ongoing, but these encouraging recommendations are a sign that China may well set out policies that could potentially overshoot its Copenhagen pledge.

It’s also important to keep in mind that China’s target was set cautiously low partly to prepare for the possibility of lower economic growth. Indeed, if economic growth is lower than expected China will actually have a harder time achieving its carbon intensity target. Chinese industries will not be able to invest as much in newer, more efficient equipment and they will enjoy less capital turnover, which will make it more difficult for China to achieve its carbon intensity pledge. For instance, if China’s economic growth turns out to be only 7.3% per year instead of 8.8%, the country will need to keep CO2 emissions below 8.2 billion tons by 2020 instead of 9.7 billion tons in order to reach the top of its target. It should be noted that in fact, most economists agree that China’s economy will continue to grow quickly in the next decades. This is another reason why China may be able to outperform its target.

In Conclusion

China’s target of reducing carbon intensity by 40 to 45 percent from 2005 levels by 2020 represents a serious new commitment that extends its existing significant efforts to improve energy efficiency and develop a more sustainable energy structure.

While it leaves room for even more ambitious action, this target demonstrates China’s engagement and reinforces its role as a key player in addressing climate change through energy efficiency, structural changes and the deployment of alternative energies and cleaner fossil fuels.

[2] National Development and Reform Commission, China’s Policies and Actions for Addressing Climate Change – The Progress Report 2009, November 2009.

[3] See Deborah Seligsohn et al., “China, the United States, and the Climate Change Challenge,” WRI Policy Brief (October 2009) and Lynn Price et al., “The Challenge of Reducing Energy Consumption of the Top-1000 Largest Industrial Enterprises in China,” Proceedings of the European Council for an Energy Efficient Economy, 2009 Summer Study.